SARB urged to take knife to interest rate

The automotive industry and the property sector have called on the monetary policy committee (MPC) to cut interest rates to help boost the struggling economy.

The South African Reserve Bank’s (SARB) committee is expected to meet on Thursday for a decision on interest rates, which have remained unchanged for the first half of the year.

Experts have said that an interest rate cut is unlikely, but is something that is needed for consumers.

Giovanni Gaggia, CEO of Real Estate Services South Africa, said that the upcoming interest rate announcement holds significant weight for the South African property market.

“A cut in interest rates would be a welcome relief for both buyers and sellers. For buyers, lower interest rates translate to reduced monthly bond repayments, making homeownership more affordable and potentially boosting demand.

“This increased activity can invigorate the market, leading to a sales uptick and potentially even upward pressure on property values.”

Gaggia said that from the seller’s perspective, it will relate to a revitalisation of the property market.

“In essence, an interest rate cut has the potential to create a positive ripple effect throughout the entire property ecosystem. It’s a pivotal moment that could set the tone for the market’s performance in the coming months.”

Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, said that he is cautiously optimistic for what lies ahead and is hopeful to see more positive trends emerge within the local housing market.

“It is difficult to predict what the MPC will do at this meeting in July. The fact that the markets are responding positively to the Government of National Unity (GNU) makes me optimistic for economic growth, lower interest rates, and growth in the real estate market too.

“The positive global response to the GNU is also likely to have a positive impact on the local housing market, as it makes South Africa seem more stable and appealing to foreign investors.”

Brandon Cohen, national chairperson of the National Automobile Dealers Association (NADA), said that an interest rate cut is generally beneficial for vehicle sales and the broader motoring industry.

“It reduces the cost of borrowing and makes car loans more affordable for consumers. Lower interest rates can also improve consumer confidence and spending power, further driving sales and stimulating growth in the automotive market by making vehicles more accessible to buyers.”

The Automotive Business Council (Naamsa) said that the ongoing downward slope in the new car market since August 2023 has underscored the constrained economic environment in the country, amplified by weak consumer and business demand. WesBank said that affordability was the biggest factor limiting growth in the new car industry.

“One of the primary factors impacting debt remains high interest rates, with relief only expected during the second half of the year.

“Consider June’s average loan value at WesBank of R410 000. Over 72 months at the prime lending rate (11.75%) the instalment is an estimated R8 054.83.

“An indebted customer who had financed the same value vehicle in 2020 linked to a prime rate of 7% would be paying R1 015.81 more a month today, which, at current interest rates, equates to about R75 730.32 more for the same car over the same contract period.”

Economist Dawie Roodt said it was unlikely that interest rates would be cut on Thursday.

“I think we might have a rate cut in September. The good news is that inflation expectations are coming down and that is an important variable for the SARB. However, I think they will still wait till inflation is below 5% and cut rates in September.”

The Mercury